Tom Maciejewski

for Berkeley Heights

Berkeley Heights Taxes

As part
of a multi-part series on our taxes, part 1 will focus on how
Berkeley Heights deals with debt and in particular what usually
happens at the end of a Berkeley Heights Bond’s Life.

Introduction:

The
Berkeley Heights Council historically has a bad habit of
re-ante-ing up every time a bond matures. If we have
$100,000 less in payments this year compared to last, they will
write a new bond that will have roughly $100,000 in payments.
I believe this to be an undisciplined approach to
capital expenditures.

How
Municipal Bonds Work

Municipal
Bonds are issued for Capital Expenditures for the Town.
Capital Expenditures are for items or projects that
have a lifetime associated with them. For example, buildings,
roads, and fire trucks are some examples of the Capital
Expenditures.

When the
council needs to purchase a capital item it passes an ordinance
that specifies what it wants to get, the life of the item and its
approximate cost. One ordinance can specify multiple capital items.
This capital ordinance is subject to challenge by the voters and
can be voted on if enough voters agree it should be voted
on.

Typically
the township will issue short term notes, called bond anticipation
notes to raise the money that is needed to pay for the capital
item(s).

Once
enough ordinances and notes are outstanding the township then
issues long term debt called municipal bonds. The life of
these bonds is related to the average life of the capital items
that were purchased. The full faith and credit of the
township is used to guarantee repayment of the municipal debt. This
means taxes must be raised to pay the debt.

Each year
the township passes a budget and in that budget is sufficient
appropriations to repay principal and interest on the
outstanding debt. This debt service is exempt from the 2% levy cap
so that can partly explain why the tax levy can exceed the 2%
cap.

In some
years a bond will mature so that no more payments are needed. This
is just like paying off a home mortgage. Sometimes one can
see a relative large drop in the debt service due to a maturing of
debt. This council can be tempted to replace the debt and can
argue that you will not see an increase in taxes.

For
example in 2007 there was about $800 thousand of debt service
rolling off. The council wanted the bond for $10M to
build in new community center and buy a fire truck. This was
put to referendum and the taxpayers voted 3000 to 2000 against
doing that. The fire truck was eventually purchased. In that
case the taxpayers were not fooled into raising taxes.

Over the
next couple of years, the town will have around $300,000 in debt
service rolling off. Again the
town will have a choice, either allow the $300,000 to roll off or
to find something to spend it on. If the council
does nothing our tax burden will be reduced. This is
not a one time reduction, but would be $300,000 less that we would
need to pay every year. If the town chooses to issue new
bonds, they are really raising your taxes.

Rather
than allowing the people to have some tax relief they find excuses
to spend on something else, so that the taxpayers don’t
notice the opportunity to cut back. In the
past rather than allowing $10,000,000 to roll of they wanted to
keep the debt load high. Will they choose to force
spend $5-$8M for the debt that will roll off? I
am sure that is what they plan to do.

If we are
really serious about reducing municipal spending we need to start
by getting out of the habit of replacing maturing debt.
Let us spend only on what we really need.
As Ed Delia likes to say, “the town has a
Want List not a Needs List”. Spending according
to a carefully crafted capital plan is essential with voter
approval of large items desirable.